This guide was last updated 27 January 2022
The mortgage world is full of jargon and ‘95%’ is often seen but what does it mean?
If you are looking to buy a property then you cannot borrow the full purchase price from a lender. This means you need to put down a cash deposit and the minimum lenders can allow is 5%, which means they will lend up to 95% of the purchase price or value of the property – hence 95% mortgage.
They are an extremely important section of the market, since that is what many first time buyers need, and getting that 5% cash deposit together is often the hardest part.
The minimum deposit needed is 5% of the purchase price but if you wish to put down more then you can, as lenders often have cheaper products at lower LTVs (Loan To Values) such as 90%, 80%, and 75%,
Essentially yes, but gifted deposits normally have to be from a close family member or lenders may not accept them. Most lenders will want to see that the money is indeed a gift and not a loan but a few can look to accept a gifted deposit that does have to be repaid, often when the property is sold in the future. Such loans will likely have to come from immediate family members.
How long is a piece of string? When people have their hearts set on buying a home then they tend to save as fast as they can. The length of time that takes depends on how much money they can save each month and what size deposit they need to get together. Don’t forget you will need extra money for things like arrangement fees, solicitors, valuation fees, and moving costs – plus some money to furnish your new home or maybe to do some work to it if necessary.
Sometimes, usually for a new build property, the developer will offer to pay the 5% deposit needed. This can be very a very attractive offer but remember that rarely do developers give anything for free and therefore the overall price will likely be higher to take the incentive into account. Lenders will generally not accept ‘builder deposits’ of more than 5% for this very reason.
Lenders use a profiling system called a ‘credit score’ to determine if your application for a mortgage is successful. It is a points-based system that takes into account all the answers to their questions, the information held on your credit file, and your financial profile for income and expenditures. Here are some key points to help you stand the best chance of being accepted. 95% mortgages are considered to be relatively high-risk loans, so the credit score to pass an application process is quite stringent.
You have access to your credit file compiled by credit reference agencies such as Experian and Equifax will have all this information. You can access this information at any time by applying to them. Sometimes you can sign up for their regular update service or simply pay a small one-off fee for a one-off credit report to be sent to you. These credit reports often contain a score. That score is not the same as the one lenders perform when you apply to them but is a good indication of the likelihood of your success when you do apply.
There are many 95% products out there with variable, tracker and fixed rates for 2/3/5 years and longer, with cashbacks, with free valuations and some with ‘green’ credentials. It can be a bit bewildering trying to work out which is actually best. Talking to a professional mortgage broker will really help. A broker will not only explain everything to you but also talk about what you want and need from a mortgage. They will take all the costs into account plus the service you will need from the lender and what flexibility you might want before looking at all the products available at the time. Then they will make a recommendation to you explaining everything you need to know. The broker will then help you every step of the way through the process until you get the keys to your new home and beyond. Some of the mortgages your broker will consider include longer overall terms and longer fixed rates – up to 40 years. These can often allow you to borrow a significantly higher amount that might help you get the home you really want. To talk to a broker please call us on 020 7220 5110 or click here.
Help to Buy – this is a government-backed scheme for first-time buyers of new build properties where you put down a 5% deposit and they add up to a 20% deposit but own that proportion of the property. Click here for a guide to Help to Buy.
Shared Equity and Shared Ownership – these are often run by housing associations where you buy a smaller proportion of the property you then live in and either pay rent on the part still owned by the association or they own the proportion
Guarantor Mortgages – this is where you cannot borrow the amount of money you need but you have a close family member who agrees to come on the mortgage with you so their income can be taken into account as well.
Family Mortgages – a few lenders have been able to create mortgages where a family member can either deposit money with them to act as a kind of holding deposit – usually a minimum of 10% of the purchase price. That money is held in a separate savings account for at least three years and then it may be returned if certain conditions are met. The advantage of these schemes is that sometimes it means no traditional deposit is required – so you might be able to borrow 100%.